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invoicing project that is expected to deliver substantial savings
and help support the company’s compliance and corporate
governance policies.
It is difficult to estimate the potential savings of electronic
invoicing. In any case, it is a very significant figure. The EU talks
about EUR50 billion per year for the region,
5
while the Italian
CNEL working group has pointed out to a EUR30 billion figure
for Italy alone.
6
Every year somewhere between 10 and 20 billion invoices are
exchanged between companies in the US and EU countries alone.
The total processing cost of an invoice (which includes both the
expenses of the seller and those on the buyer side) is somewhere
between EUR20 and EUR30. The estimated saving that can be
achieved through automatic processing is generally estimated to
be 70-80 per cent of that figure.
7
(Figure 1).
With a few notable exceptions such as Finland, the actual adop-
tion of electronic invoicing in the market has been most
disappointing: in Europe at least 95 per cent of invoices
exchanged between companies are in still in paper form.
8
An explanation of the surprisingly low diffusion in most coun-
tries can be found in the so-called network effects. The advantages
of electronic invoicing are contingent on reaching a critical mass
of users as illustrated by the spread of the fax machine.
In 1984 about 80 000 fax machines were sold in the USA. In
1987, when the number of fax machines hit 500 000 units (the
tipping point), sales of fax machines exploded, reaching one
million per year. The fax machine had suddenly become indis-
pensable.
9
However, below the level of critical mass a service that obeys
‘network effects’ delivers a value that, by definition, is less than
its cost (Figure 2).
A seller has little or no interest in migrating to electronic invoic-
ing until his business partners do the same, especially considering
that the savings of electronic invoicing are greater for the buyer
(who can automate a complex and costly process) than for the
seller (who saves post and archiving costs) (Figure 3). In this
phase the few early adopters are easily discouraged.
For instance, in a number of EU states the migration to elec-
tronic invoicing is made difficult by the complexity of the legal
requirements. The irony of the situation is all too obvious, if one
just thinks that electronic invoicing gives tax administrations a
new weapon with which to fight against tax evasion.
The regulatory obligations required by some EU member states
(electronic signature, time stamp, electronic invoice archiving
rules etc.) can be satisfied by using third party software solutions,
which encapsulate the regulatory requirement. The problem is
that these solutions are ‘black boxes’ for the seller, who is still
responsible for the correctness of the invoice towards the tax
administration. The answer is a proactive role for tax adminis-
trations in supporting suppliers of electronic invoicing solutions,
to give users certainty of the regulatory compliance of the e-invoic-
ing solutions offered by the market.
Supporting electronic invoicing is also important to assure that
electronic invoicing will be equally adopted in developing coun-
tries and will not end up making only companies from developed
countries more efficient, thus increasing the digital divide. If the
network theory is correct, this represents a very concrete risk.
Electronic invoicing is not going to happen without active promo-
tion and support, which is weak or downright absent in developing
countries. Furthermore, the regulations covering electronic invoic-
ing in developing countries are often complex or unclear, which
puts a further burden on the shoulders of early adopters.
SELLER
» Lower invoicing costs, no paper,
no printing, no stamps
= 1-4
€
/invoice
» Improved cash flow
= open
» Improved customer relations
= open
BUYER
» Lower costs for invoice receipt
checking and reconciliation = 9-30
€
/invoice
» Improved cash management
= open
» Better quality of data
= open
Figure 1: Advantages of electronic invoicing
Under the
“critical mass”
the value of the
service for the
user is lesser
than its cost
Utility=Users
2
Over the
“
critical mass
”
the value of the
service for the
user is greater
than its cost
Figure 2: Metcalf’s law
Utility value
of service
Euros
Costs
Savings
Benefits
Net loss
Number of electronic invoices/month
Figure 3: Savings of electronic invoicing for the seller